Thursday, August 20, 2009

Three Time's A Charm for US Stock Markets

Stocks rose for the third consecutive day, nearly erasing the declines from the previous Friday and this Monday, as investors shrugged off persistently high unemployment numbers and focused instead on economic data that showed a slow but steady pattern of recovery for US businesses.

The markets were somewhat blind-sided by new unemployment claims prior to the opening. At 576,000 for the most recent week, new claims were higher than expected and worse than the 561,000 reported the week earlier. That did not spoil the mood on Wall St., however, as stocks raced to early gains and added to them as a report on leading economic indicators registered a fourth straight monthly increase of 0.7% for July. As that report was passing the wires, the Philadelphia Fed Index came in above expectations, with an increase to 4.2, up sharply from -7.5 in July and well ahead of mostly dour expectations.

Without earnings driving the market currently, it has been a steady stream of economic data that has buoyed markets of late. Though the news hasn't been earth-shattering or jaw-dropping, it's about as good as it can get, considering the dire circumstances which investors faced in months prior.

Options expiration, which occurs on Friday, had some impact, as surely some of those with gains converted into actual shares as the strike date neared. Often the culprit for volatility, the options trade has been somewhat tame over the past six to eight months. Shying from the outright risk of losing everything, many options players have scaled back their efforts or employed straddles or other methodologies to ameliorate risk and eliminate losses.

Should there be nothing in the way of outright "bad" news on the morrow, all of the major indices are set to record another positive week. The key number to watch for on Friday is the July Existing Home Sales report, due out at 10:00 am. Expectations are for 5 million homes to have been sold in the month, which would be a modest, but sustained, increase from June's 4.89 million.

Dow 9,350.05, +70.89 (0.76%)
Nasdaq 1,989.22, +19.98 (1.01%)
S&P 500 1,007.37, +10.91 (1.09%)
NYSE Composite 6,553.40, +74.12 (1.14%)

Advancing issues once again led decliners, 4471-1937, while new highs registered an edge over new lows, 142-49. Volume was once more on the pathetic side, though it's been that way all spring and summer. Most of the pundits and analysts following money at work or at rest have reported that there is still much on the sidelines, but there are signs that more is flowing into stocks on each successive dip.

The markets have largely gathered back everything lost on Friday and Monday. The Dow is just 48 points short of where it closed on Thursday, August 13. The NASDAQ is 20 points below the close from the same date and the S&P is just 5 points below the magic number at 1012.

NYSE Volume 1,119,247,000
Nasdaq Volume 1,988,868,000

Crude oil was up again, though only by 12 cents, to $72.54. Gold continued to trade in a range, losing $3.10 to $941.70. Silver also seems stuck, up a penny, to $13.88. Commodity prices, especially oil, are eventually going to lose investor interest and take on water as stocks have been consistently solid performers for the past 6 months running, since the bottom of March 9. While many portend that the trend cannot continue without a meaningful correction, the economic forces of globalization and deflation are playing important and, as yet misunderstood, roles in business cycles.

Pricing power being non-existent, the push of late has been for market share and product diversification. Companies which pared their labor and other costs early on have thrived under the new regimen and should continue to do so as the economies of the world gradually improve.

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